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Unfair competition law in the State of California

The unfair competition law in California found in Business and Profession Code section 17200, et. seq., is the topic of this blog post. The law will be referred to in this blog post as “UCL”.

The main purpose of the UCL is to protect the public from unscrupulous business practices. Its scope is extremely broad. In fact, until passage of Proposition 64 in November 2004, a violation of the UCL, as opposed to common law fraud, could be shown even if no one was actually deceived or relied upon the fraudulent practice or sustained any damage. A violation required only a showing that “members of the public are likely to be deceived.” And the law also allowed individuals or groups that never suffered any loss or harm to sue on behalf of the “general public” without satisfying any of the traditional class action requirements.

In addition, the pleading requirements and standards of proof were very relaxed and allowed recovery, sometimes on a representative basis, upon merely a determination that the challenged conduct was “unfair” or “likely to deceive a reasonable consumer,” without any proof whatsoever of actual injury or damages. The lack of any formal class action requirements also meant that UCL judgments bound only the named plaintiff and not the “general public” they were supposed to represent, raising the very real prospect of being sued again and suffering repeat liability for the same conduct for an unlucky defendant.

Several highly publicized cases in which several attorneys who have since been disbarred filed multiple lawsuits against multiple defendants for trivial violations of minor laws made the news. Clearly the UCL was being used by certain parties and attorneys to squeeze “nuisance money” out of defendants, many of whom were minority small business owners with businesses such as nail salons.

The resulting public uproar resulted in the passage of Proposition 64 in November 2004 which  made important procedural changes to Section 17200 and Section 17500, which helped large and small businesses in California.

As a result of Proposition 64, the UCL now requires that a plaintiff show he or she has suffered an actual injury and has lost money or property as a result of such unfair competition. And all representative actions under Section 17200 or Section 17500 are now required to meet regular class action requirements.

The most common of the remedies under the UCL are injunctive relief, and restitution and/or disgorgement of business profits obtained in violation of the UCL. Section 17203 does authorize the court to fashion remedies to prevent, deter, and compensate for unfair business practices. In addition to injunctions, it authorizes orders that are necessary to prevent practices that constitute unfair competition and to make “orders or judgments…as may be necessary to restore” to persons in interest any money or property acquired by unfair competition.

Another huge advantage of the UCL is that plaintiffs can recover attorneys’ fees by establishing the required elements under Code of Civil Procedure Section 1021.5, which is the private attorney general fee statute in California.  Obviously, this creates a strong incentive for plaintiffs to diligently prosecute UCL claims.

As stated by a California Court of Appeal, the UCL itself does not prohibit any specific activities but it does prohibit any unlawful, unfair or fraudulent business acts or practices, as well as deceptive, untrue or misleading advertising.

“The UCL does not proscribe specific activities, but broadly prohibits any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. The UCL governs anti-competitive business practices as well as injuries to consumers, and has as a major purpose the preservation of fair business competition. By proscribing “any unlawful business practice,” section 17200 “borrows” violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.  Because section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent. In other words, a practice is prohibited as “unfair” or “deceptive” even if not “unlawful” and vice versa.”  Puentes v. Wells Fargo Home Mortg., Inc., (2008) 160 Cal. App. 4th 638, 643-644 (internal citations and quotations omitted).

In discussing the unfair aspect of the UCL, the California Supreme Court stated that, “Any finding of unfairness to competitors under section 17200 [must] be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition. We thus adopt the following test: When a plaintiff who claims to have suffered injury from a direct competitor’s “unfair” act or practice invokes section 17200, the word “unfair” in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., (1999) 20 Cal. 4th 163, 186-187.

And in discussing the fraudulent aspect of the UCL, in Puentes, supra 160 Cal. App. 4th at 645 a California Court of Appeal stated that, “The term “fraudulent” as used in section 17200 does not refer to the common law tort of fraud but only requires a showing members of the public are likely to be deceived. Unless the challenged conduct targets a particular disadvantaged or vulnerable group, it is judged by the effect it would have on a reasonable consumer. ”

And a violation of any law, whether it be a federal, state or local law can support a cause of action under the UCL.

And in regards to the unlawful aspect of the UCL, a California Court of Appeal stated that, “By proscribing “any unlawful” business practice, Business and Professions Code section 17200 “borrows” violations of other laws and treats them as unlawful practices that the UCL makes independently actionable. An unlawful business practice under Business and Professions Code section 17200 is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. Virtually any law, federal, state or local  can serve as a predicate for an action under Business and Professions Code section 17200. ” Hale v. Sharp Healthcare, (2010) 183 Cal. App. 4th 1373, 1382-1383 (internal citations and quotations omitted).

However, the facts supporting the statutory elements of the violation must be stated with reasonable particularity.

“A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation.”  Khoury v. Maly’s of California, Inc., (1993) 14 Cal. App. 4th 612, 619 (internal citations and quotations omitted).

In addition to the many other advantages to traditional litigation, the UCL makes it economically feasible to sue when individual claims are too small to justify the expense of litigation and thereby encourages attorneys to undertake private enforcement actions.

Attorneys or parties in California who would like to view a sample complaint that includes a cause of action for violations of the unfair competition law sold by the author can click below.

The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California litigation since 1995.

Visit his website at Sample litigation document packages for sale

If you enjoy this blog post, tell others about it. They can subscribe to the author’s weekly California legal newsletter by visiting the following link: http://www.legaldocspro.net/newsletter.htm

View numerous sample documents sold by the author: http://www.scribd.com/legaldocspro/documents

Copyright 2012 Stan Burman. All rights reserved.

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

These materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

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